53rd Congress of the European Regional Science Association: "Regional Integration: Europe, the Mediterranean and the World Economy", 27-31 August 2013, Palermo, Italy
We examine whether income and unemployment risks are compensated by individual wages. Using a portfolio approach we show that the marginal income risk effect on wages is always positive whereas the marginal unemployment risk effect crucially depends on the income risk. The interaction effect between both risk measures is negative. Using administrative panel data from Germany we confirm the theoretically predicted signs for both risks and their interaction effect.